The latest CreditorWatch Business Risk Index (BRI) reveals that while Australian business activity has considerably increased, it remains at a low ebb, with the average value of B2B invoices generated from such activities still down by 42 per cent year-on-year and below pre-COVID levels.
The report highlights a minor lift in the value of invoices from August to September, in line with the lift in forward orders reported by the NAB Business Survey, but a reversal of the downward trend remains a long way off largely due to persistently low consumer demand.
And given the current challenges related to inflation, persistently low invoice values are a huge cause for concern in a high-inflation environment.
CreditorWatch’s other key business indicators, such as trade payment defaults, credit enquiries and court actions, also reflect the challenging conditions confronting businesses.
CreditorWatch CEO, Patrick Coghlan said that the easing inflation is a positive sign for business activity going into 2024 but conditions remain challenging.
“Rents, energy prices and the cost of services are keeping the heat in inflation but it’s encouraging to see some of the other drivers normalising,” Coghlan said. “However, our forecast is still for the business failure rate to increase over the next 12 months.”
CreditorWatch Chief Economist, Anneke Thompson, added that business conditions, particularly among small businesses which are more sensitive to drops in consumer spending, are likely to remain subdued until at least mid-2024, when cuts to the cash rate are forecast.
“The average value of invoices has increased slightly, although there has been a noticeable downward trend since late 2019,” Thompson said. “Given that, in an inflationary environment, we would expect this indicator to be going up, it is somewhat concerning for the health of the economy that it is moving in the opposite direction.”
Given the challenging operating environment, CreditorWatch forecasts a sharp rise in the business failure rate over the next 12 months. While high interest rates and reduced consumer spending are playing a large part in this spike, tax debts would also play an important factor, given that the ATO is taking a more hard-line approach to collecting the tax debts accrued by businesses during the height of the pandemic.
Businesses in the food and beverage services sector remain the most at risk of payment defaults by a considerable margin at 6.8 per cent. Transport, postal and warehousing is identified as the next riskiest industry at 4.5 per cent.
At the other end of the spectrum, while labour shortages and costs are still a problem in the healthcare sector, demand is such that businesses are more able to pass these on. Many healthcare costs are also borne by government, which CreditorWatch identifies as a safe creditor.
